How to Navigate Offers & NegotiationsBy Jennifer Silvester
Over the years, I have worked with many talented executives through the search process. Very few have ever proclaimed their love for negotiating their own compensation packages. It can feel awkward and daunting, but itâ€™s a crucial process that can have a significant impact on your career and financial future. There are definitely ways to make it a better experience for all involved. In this article, we will explore some of the strategies and tips I would give to an executive candidate when they find themselves in a compensation negotiation.
1. Be Open Minded & Strategic
As an executive search consultant, I often see candidates dismiss potential opportunities because the base salary or title isnâ€™t what they were expecting or hoping for. However, itâ€™s important for candidates to be open-minded and think strategically about compensation. If an executive search consultant reaches out to you about an opportunity, it is because they think there is a potential match in experience level. I would always suggest you take the call to learn more about the company and role. Context is everything. Organizations vary wildly in size and structure, so ask questions before you dismiss a potentially great role.
It is also important to be strategic in thinking about the long-term potential of any opportunity and the compensation package itself. There may be a time in your career when a position may offer a lateral or lower base salary but provides you with the growth and development that can accelerate your career. As executives advance, the balance between guaranteed compensation (base pay) versus at-risk compensation (short and long-term incentives) shifts with much more weight in the at-risk bucket as well. These are all things you will never discern from a role description and require direct engagement with the company or the Executive Search Consultant.
2. Know Your Values and Priorities
As an executive candidate, itâ€™s important to understand the value you bring to the company and how your skills and experience align with the companyâ€™s goals. I would recommend taking the time to identify your priorities and whatâ€™s most important to you in a compensation package. While salary is often the main focus of negotiations, there may be other benefits, such as long-term incentives or location that are equally or more important to you. By prioritizing your needs, you can negotiate a compensation package that meets your goals.
3. Understand the Market, Company, and Role
Before entering any compensation negotiation, itâ€™s important to do your research. Do your own homework on the company, role, and general market. With some informed perspective, an executive search consultant can provide additional insights and context into the market rates for your position, as well as the companyâ€™s perspective on compensation, including their financial constraints and priorities. This information can be invaluable when it comes to negotiating a compensation package that meets your needs and is also realistic for the company.
4. Be Transparent & Expect Transparency
A great way to kill an opportunity is for either party to lack transparency when discussing a role. There is nothing worse than executives and companies investing a lot of time and energy into an interview process, only to find out later that there was never a scenario in which the compensation package was going to be adequate. Sometimes a candidate may assume that although a compensation package is not within their expectations, if the company just meets them, they will change the package. While this scenario is not unheard of, it is increasingly rare. It is always in your best interest to be transparent about expectations and priorities.
Being transparent about your expectations also helps build trust and credibility with the search consultant and company. By being clear about what youâ€™re looking for in a compensation package, you demonstrate a level of professionalism and sincere intention. This can go a long way in building a strong relationship and can help set the stage for a successful negotiation.
5. Consider Long Term Incentives
Long-term incentives (LTI), such as stock options, profit sharing, or earn-out plans, can be a powerful component of your compensation package. As executives advance their careers, LTI makes up a much more significant portion of the overall package. In fact, according to a study by PwC, CEOâ€™s receive an average of 62% of their total compensation in the form of long-term incentives. These incentives can provide a significant financial benefit over the long-term, and they also demonstrate your commitment to the companyâ€™s success. These plans can be complex and difficult to evaluate.
To understand the value of an LTI incentive associated with a package, consider these key factors:
- Vesting Schedule: The vesting schedule will determine when you are able to receive the benefits of the LTI awards. Some plans may vest over a period of several years (3-4 years is typical), while others can vest over longer periods of time.
- Performance Metrics: LTI plans often are tied to specific performance metrics, such as company revenue or stock price. Itâ€™s important to understand the performance metrics so you can evaluate the likelihood of achieving those metrics. You can also ask for a history of the companyâ€™s performance in those metrics.
- Earn-Out Plans: These plans are typical for executives joining a private equity owned company that intends to sell the business over a specified time horizon. In these plans, the incentive is meant to drive performance of the business to achieve a certain sales price. It is important to know that these plans (and their respective payouts) rely completely on a successful transaction at a sales price that meets or achieves the PE firmâ€™s objectives.
- Potential Value: You should try to understand or ask the company to help you assess the potential value of the plan, both in terms of the amount of the benefit and the potential impact on your overall compensation package.
- Tax Implications: LTI plans may have significant tax-implications that you will want to be prepared for and understand. You can ask for input from the Executive Search Consultant, but it is also wise to consult with a CPA.
- Company Performance: Any LTI plan is always focused on driving the companyâ€™s performance against their strategic plan. Take time to understand the past performance of the company and how well equipped they are to achieve their objectives. Search consultants can help you understand how long-term incentives are structured and which components may be negotiable.
6. Be Flexible and Collaborative
Compensation negotiations are a two-way conversation, so be open to compromise. While you may have specific requests, itâ€™s important to understand the companyâ€™s constraints and be willing to work within those parameters. Being flexible and willing to negotiate shows that you are a team player and committed to finding a solution that works for everyone. Executive search consultants can help facilitate these negotiations and ensure that both parties feel heard and valued.
7. Consider the Intangibles â€“ Itâ€™s About More than Money
Finally, it is important not to get so lost in the compensation negotiation that you lose site of the other important considerations and factors that are influencing your decision. No matter how great the compensation package may be, if there are red flags about the company culture or values, your success will be limited. It is important to consider whether the companyâ€™s culture and values align with your own. It is also okay to take the lower or lateral offer with a company that you deeply believe in and get excited about. Most executives know that the money will follow success, so your first question should be whether you believe you can be successful for the company/role. As Tony Hsieh said â€œChase the vision, not the money. The money will end up following you.â€